Episode 251: How to Communicate the Need for Operational Support through Unrestricted Giving
It's such a pleasure to have you join me, Randall, on this edition of around with Randall. I want to chat today about something that I'm seeing, hearing, feeling from so many in our nonprofit space. And that's the challenge of dealing with what our finances are really pushing us toward, particularly coming from our CFOs, our business managers. How are we going to pay for the basics of what we do before we ever get into the programing elements that really are the things that people want to fund?
What we're talking about is unrestricted needs of philanthropy, versus the restrictions that donors are putting on many of our donations, that they're what they look for, that impact, how do we deal with that? How do we make this work in a meaningful way, where we can approach donors and explain why unrestricted giving, most of which goes to some type of support of our administrative functions, is so critical because without it we can have great programing.
But if we don't have the infrastructure behind it to pay the bills, to staff the critical functions of the amazingly dedicated people that most of the community doesn't see, the organization will eventually crater because it doesn't have the infrastructure necessary to be successful. How do we balance is really our key question what donors are trying to do versus what our organizations are trying to attempt to get done?
So let's start with the bigger picture. We know that a lot of our nonprofits health care, education, social service, pick your very sector of our philanthropic, nonprofit world are struggling and that they are struggling from the inside out, meaning there's more and more pressure on what we would think of as the dreaded term overhead. And we're going to deal with that in a second, because it's a terrible term, but it's one in which I think most of us have been familiar with in our career.
We have to do things like keep the lights on, like pay the people who are managing the back ends of our organizations the compliance, the finance, the HR, the basic services that our organization provides to the employees who may be on the front side of service or even in philanthropy. At the same time, we know, as we've talked about many a time, 95% of our dollars are coming from only 5% of our donors, and that donors over the course of time have become more sophisticated, meaning they really don't think of Object of Giving as an investment.
They think of it as well. That's your problem. What the what the challenge is, is that when we have support for our inside of our organizations, we're restricting agility. We're restricting our ability to have our organization do the things that it needs to do. And it may begin what I was mentioning at the top, and I'll give it a title now, maybe something called a starvation cycle, where the nonprofits are underfunded in the administrative operational side of the organization because we don't have the dollars to support it or the revenue streams to support it.
And then people go, well, why can't you do all the things you're doing when we're giving you possibly lots of money for the program side, the output? What are organizations doing from a mission perspective to better serve the community? This puts pressure on our philanthropy because our CFOs, I'm hearing, are saying I need more unrestricted dollars. We do not have enough financial support in ways that isn't restricted, i.e., in some type of giving vehicle that a donor has through a gift agreement or some type of verbalization of their gift that restricts it to the idea of what they want to do from a service perspective.
So we don't have the funds to do what we need to internally, and as a result, what we tend to think is, is that donors view this this idea of unrestricted giving, this operational work overhead as less meaningful. It's not as important to donors because they don't see the value, or we really don't explain it very well either, in the end, that it creates a scarcity of resources.
That is really causing a lot of nonprofit leaders to make cuts in very specific, dramatic, important ways that are having long term consequences on the viability of the organization. We also can look at some data to tell us that when we have a robust, unrestricted opportunity to bring funds in to support the operations of the organization, we know that the organization evidence is showing it leads to better long term sustainability and outcomes.
Yes, we need both, but unfortunately, the data is also telling us that 80, 90, 80 to 90% of the dollars coming in to the in campaigns, whether that's a capital campaign or an annual campaign, are restricted and that foundations don't like to support this as much, 20% or less of their granting actually is unrestricted and operating in terms of support.
All this is to say is that we have to find a better way of communicating why this is important. The tactical pieces of today, as we kind of jump into that part of the podcast, is to really have a conversation about how we communicate with our community, why this is so important, what is it mean from.
A organizational structure, organizational strengths, perspective? Excuse me. And in doing so, we can cause our community to have a better connection to who we are and what we do.
So to do so today, we want to take apart this idea of communication. What we can do in seven different pieces, seven things that are tactical about how to navigate this tension and explain its importance. So let's start at the very top. We have a responsibility with our donors as much as we can to educate them about this importance, this key concept of what is constituted as an overhead or operations, because we tend to let it be called that if we actually repositioned just the vernacular around the idea of operations unrestricted giving as our mission fuel or the infrastructure that provides and allows for the impact.
Do you think donors, community members, leaders would be more willing to invest in that? But that's not how we talk about it. The importance of talks about this in the famous 2013 video you YouTube, you can catch it anywhere about it. On one of his, Ted talks about this concept, about how we've just demonized the idea of overhead and yet overhead in for profit businesses while they try to keep it as low as possible, is the reason they're able to grow to use strategy.
Most importantly. So we have to reposition this as one of the core things that allows us to function to be impactful. Maybe the analogy would be you wouldn't fund just the wheels of the car, or just the accelerator and the radio. You need gas, tires, maintenance. You need all kinds of things that make the car run that aren't that sexy.
You don't get to see motor oil being used, but if you don't have it, the car is not going very far. If we change the way that we articulated why this is important, we might be able to have better conversations with our donors. It also from a historical standpoint, particularly recent history, unrestricted dollars were such a critical component for nonprofits during the pandemic because it allowed them to pivot and to be able to do things that were innovative or that were critical to the success in the moment as they made adjustments.
This would apply to natural disasters and other places where it becomes more community wide. Okay, appealing to make unrestricted gifts because people or the organization in this case are under such immediate crisis.
But that isn't just in those times. Organizations have to function with a sense of flexibility, with immediacy all of the time. And so the first thing I would advocate is repositioning how we talk about this. It's the fuel that makes our engine, our organization, provide the impact. It create an analogy. How do you go out and talk to donors and your community, your board, about why this is such an important aspect of our organization?
Now, if your overheads run an 80% or 80 $0.80 on the dollar for every dollar spent, that's you're not going to get argument. But if you can show the efficiency and effectiveness of your organization, we'll talk about this in a few moments here about how to do that. Please, I give you a message about why this is so important.
Number two is the idea we mentioned this I talk about. I have talked about this in plain giving for two decades, but I'm going to pivot to now using it in the idea of unrestricted giving in support of operations, the idea of blended gift opportunities. We spend a lot of time with our intermediate leadership annual giving. So there's a relationship piece as well as our major gifts into our transformational principal gifts, even the plain giving.
But we never bring up the idea of unrestricted support in those gift opportunities, or very rarely do. So it becomes kind of a dual ask structure. Should we be asking in every one of our gifts, you've said an indication you really want to support this particular program. We've talked about it at the $50,000 level. This is your passion.
Going back to what we concentrate on getting closer to what transformational is there? Passion. One of the things that is really important to make the gift you're trying to bring to fruition possible in terms of execution, is making sure we have an underlying strong support system within our operations. Could we add $5,000 to that 50,000 that would go toward our operational support that makes these programs possible?
Frame it as a way of the gift conversation and allowing the gift to actually show the impact that it can provide, should provide. But the donor wants. All too often, if we don't position in this way, they make the $50,000 gift for programing. But who's going to execute that program? How's it counting going to work? How's it going to work?
How we can turn on the lights. All this is to say is, is that if you reposition as a part of most gifts, you might increase your opportunity. And certainly they're going to be able to say, are you nuts? I'm not doing that doesn't mean we should stop with that approach, because our organizations have to bring up every day financially.
So the blended giving approach.
The third is the idea of trends. And in financial storytelling, this is what I was referring to earlier, is if you have a really strong, high, efficient, low or low cost, increasing your ROI into the community in terms of service, operational, administrative, office, show that show it against national or state or regional comparisons. Benchmarks demonstrate that we are incredibly careful with our overhead as it's described our fuel in our engine that makes our cargo we're incredibly efficient, but we still need the resources.
So pie charts with percentages and comparisons and then compare it to the actual delivery. If you're spending 12 to $0.13, good. A bad example on this idea of administrative operational costs. That's pushing 87 $0.88 out the door to changing lives to what philanthropy actually means. We should tell that story, and we need to help them, our donors and the community understand.
Connect the dots about why this all occurs because of your unrestricted or your willingness to consider unrestricted dollars. We retain key staff, we upgrade systems. We maintain quality back end operations that allow the programs to really to really fly. That's a different way of talking about what it is we need on the back end. In terms of operations.
We need to be clear and concise, and we need to be confident that this money is going to be used is critical and is by doing so, we're going to reduce skepticism that we don't need this. Again, I'll steal from Dan Polenta. Maybe marketing is a back end thing. You need to communicate your what's your organization does.
And he uses the example of well, we can get it for free at 4 a.m. on PBS where nobody's watching. But being able to explain the value of, let's say, of marketing and how it might increase volunteers or engagement, and that is administrative operational function, which will scale possibly who we are and what we do and who knows us.
That's a much better story. So think about the storytelling from a financial perspective and the transparency about how hard we should be working and do work to keep those costs down.
Number four is something that I've talked about in various podcasts, but comes very much alive here. And that's the importance of just building trust with our donors. You may think, well, wait a minute, what does that have to do with unrestricted or giving or the operational support necessary? If our donors really trusted us and we were willing to have the conversations that we just were talking about, they're more likely to engage in this conversation, which means it's all we do is show up to ask.
That's the only time we're doing outreach. You're not building trust. You're transactional. No, there's no reason for the donor to possibly think about you in a very trustworthy way or the nonprofit which you represent. If we really want to talk about transformational giving, which is not a dollar sign or a dollar amount or a number of zeros or commas, but it's about someone's heart that's based on trust, which means we need to be there on a regular basis.
This is where and I've done podcasts on this before. Go back and look on I and the idea of stewardship that we have an opportunity to use tools to make things more individualized. So it's just not being the communications, not just going out when we want something, but we're actually telling them the story, how important they are. We're giving them honest updates with results, whether they're positive or maybe mixed, but we're making the investments to do the things we need to.
And this proactive stewardship is telling them how their last gift was used or grouping it together. If it's a smaller gift to showing deeper impact. This is about building deeper relationships using tools, technology, individuals, whatever it takes to make them understand that we want and we're going to earn their trust. And in doing so, we can have more meaningful conversations around why unrestricted giving allows us that operational really impetus to be successful.
Number five, you can segment your donors. I don't hear this one talked about very often where if you have consistent, unrestricted donors, segment them off and communicate with them differently, or if you have people that have shown inclinations about this, you can do it in that way and give them better messaging, more specific messaging. So that's very detailed.
Let's go up maybe 10,000 ft. Individuals like stories and personal relationships. It's back to that trust thing that we just talked about. Can we connect our outcomes even with the administrative work or operational dollars that are necessary to outcomes that that we can tell? Look what your dollars have done. Would you give to us again? Would you support this again?
For foundations, they want high efficiency and capacity building. This is one where we can go and talk about if we had better infrastructure, we could grow our impact. We're being held in constraint, held back and constrained by the fact we don't have the infrastructure in technology or in communication that we need. They could really double and triple the size of impact that we have in the community.
For corporations, you can frame it as a community investment that can show for those corporate entities who are looking for strong, vibrant communities to do hiring to keep in business, to make money. There are for profit entity that this kind of investment we get to then fill the holes of our community. As I talk about the gap between government and for profit, that's where philanthropy and nonprofits live.
We can elevate that so the community becomes stronger, which gets better employees, which takes care of problems that kind of pull back or pull on businesses in terms of their growth. We become a partner in their pursuit for whatever their corporate goals are while serving the community. At the same time. So segmenting your approaches and your communication, whether you've had people who've done it or by the kinds of entities, there are ways you can reshape your messaging about the importance of the infrastructures that make our nonprofit successful.
Number six is a deviation on just what I talked about, a really about unrestricted funding being a philanthropic partnership.
Giving to unrestricted dollars shouldn't be less meaningful, but we have allowed that messaging to occur and to flourish for too long. What we need to do is position this as a shared investment that drives the organization to excellence. Think about it this way restricted giving is I love this program. That's the donor saying I love this. What your organization does in this area.
Unrestricted giving can be and should be classified as. I believe in your leadership and your vision overall.
That's a different message that we just don't talk about. And so we can create by doing so unique recognition opportunities. So this is kind of part B of this idea of a partnership. How cool would it be to take people who have given unrestricted gifts at all, or a certain level, and give them a unique recognition society, champions of possibilities or partners in innovation, where you elevate their standing from a recognition stewardship perspective, showing them how important this is, showing them that they are sustainer of success of the entire mission, not just of a single program.
I have not seen this done where we have unique ways of using recognition in stewardship to elevate donors who are making unrestricted gifts or gifts that are toward operations or administrative use. So restructuring this as a partnership with recognition might elevate people's thoughts as to I want to be a part of something as they see people's names appear that are respected in the community, corporations, foundations and people like recognition most do.
And then this could be a way that you could elevate the cause. The last seventh of the seven things that we might think about to change the way we look at unrestricted giving administrative support, operational support is giving our gift officers better tools. And really what we're talking about here is language, things that might be things like an elevator speech restricted giving makes our programs possible.
And we're so appreciative, unrestricted of giving builds our organizations capabilities to serve, to build our sustainability, maintain a sense of excellence every day inside our organization.
Gift officers, if we gave them the right tools, can introduce unrestricted giving opportunities first, with the right way of looking at it as we've talked about it, but being able to pivot to restricted opportunities.
We could reward metrics around the idea of did we? Maybe not the dollars, just the asked or the invitations for people to join us in getting to unrestricted giving to support our administrative operations? And then lastly, we need to do a better job of equipping our board members or trustees or directors, whatever the proper title, with the right talking points as to why this is so important.
I talk about much of what these podcasts provide from a tactical perspective for staff, and while I think that's the majority people listening. The fact of the matter is, is one trustee saying the right thing at the right cocktail party at the country club is exponentially more valuable than all the gift officers going out and talking all the time because they have the credibility.
They're one of them, meaning the donor set the community to equip our board members with some of the information we've talked about here today, and tasked them with going into the community and talking about it, to validate the message about how important with their peers.
Why this is so important. I tend to find we don't. So board members are left with this idea nasty term of overhead because we've not helped them. So these are seven things you can do from the tactical in terms of how we frame it, to messaging, to blended gifts, to financial storytelling, to the idea of building better trust, moving in to the idea of segmenting our donors based upon whether they've given before or what type of donor they are, repositioning this as a partnership, elevating maybe some recognition opportunities and equipping our staff, and most importantly, probably our board to have different discussions in this entire process.
In the end, this tension is not going to go away. It's actually going to get worse. We have to embrace this. I think we tended to run away from it because we didn't want to deal with it. As the economy and certainly governmental spending and things of that nature are not going to become less unpredictable. They're going to become more unpredictable.
We need to not run from this, but run to it and figure better ways of articulating why this idea of infrastructure and administrative and operational costs, done correctly, done efficiently, is so critical to the success of our organizations and that funding that either through restricted to operations and or more importantly, unrestricted giving, is a viable, important part of who we are and why we're successful.
Think about it this way as a kind of a thought conclusion.
Restricted gifts show passion. Unrestricted gifts. Show trust. How do we get to more of that trust? To support the things that are necessary that most people don't see and that, frankly, most people don't care about but are quintessential to our success? Build that trust. And in doing so, you'll build your organization much stronger than it is today. Don't forget to check out the blogs at Howard Philanthropy two per week thoughts on Leadership, Nonprofit factoids, or stories that I read.
Things I see in life just in terms of my own existence. Hallettphilanthropy.com\blogs and an RSS feed. Right to you might be interesting in terms of something 92nd reads simple. And if you'd like to reach out to me, it's podcast of hell a friend to be.com. It's critically important we find ways to do the right things to make philanthropy and nonprofits successful.
As I mentioned a few minutes ago, the world of the nonprofit sits between corporate entities free enterprise capitalism, people who are looking to make money. And they don't want to do this because they all make money, whatever that is. And the government, which is not always the most efficient, that's where nonprofit philanthropy lives. And the work that you do, the work that goes on in this area is critical to community success, community viability.
Don't forget some people make things happen. Some people watch things happen. Then there are those who wondered what happened. If you're someone who makes things happen, you work with others in the community who want the same for the people and the places and the things the organizations who are wondering what happened. Pretty cool way to spend a career knowing you are making a difference.
And I hope you get a chance today and every day to get just a moment to realize the impact that you have and making your community a better place. I'll look forward to seeing you the next time, right back here on the next edition of Around with Randall.
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Make it a great day.